Abdurraheem Green – Loss Aversion E-Reminders

			Oh yes, brothers and sisters, slowly calm. Welcome to another reminder and today, today we're
talking about loss aversion. And as you know, I've been going through some of the cognitive biases
that we have as human beings. So just a refresher for those of you who don't know what a cognitive
bias is. So a cognitive bias is a particular way in which our brain functions.
		

			Generally a particular way in which human brains function,
		

			that is usually very helpful.
		

			It does that because our brain takes a lot of energy. And our brain has developed shortcuts in order
to save energy. But these shortcuts that our brains take,
		

			are not always helpful. Not always, sometimes they cause us to come to the wrong conclusions. And
sometimes they can be outright dangerous. And brothers and sisters, you see, this is really part of
what being a Muslim is all about. I don't think any one of you who actually takes the time to read
the book of Allah and read the Qur'an will fail to see the strong encouragement that Allah subhanaw
taala gives us to use our minds and to think thinking deeply about things is an intrinsic
fundamental part of what it means to be a Muslim.
		

			It doesn't, it doesn't mean that you need to be a philosopher, it doesn't mean that you need to be,
		

			you know, some academic, not necessarily at all. But you should think deeply about yourself, you
should think deeply about the world around you, you should think deeply, especially about what
motivates you, and what makes you to do what you do, and what makes you avoid doing certain things.
So what makes you do what you do, and what makes you not do what you don't do? Because there's no
doubt that being a Muslim, is going to involve doing a whole bunch of things that may not almost
definitely will not,
		

			suit your desires, suit, your wins suit your impulses. So this whole thing of impulse control, this
whole thing of controlling your impulses, controlling your passions, controlling your desires,
controlling your wins, and taking time to pause and plan and think, is a fundamental part of what
being a Muslim is all about.
		

			And, you know, we could just repeat ourselves over and over. Because we've mentioned these things so
many times. But I'm just telling you why I am spending time looking into these subjects. Now. I
think that anybody who thinks deeply about what motivates them, and every Muslim has to do that, is
in one way, shape, or form. Gonna start figuring these things out, they're gonna start realizing,
you know, what, the way I react the way my brain reacts, the way I react to things is not always
helpful. And it's not always the way that things are.
		

			Now, I want today I'm talking, I'm talking about something. Yeah. Which is loss aversion. The
aversion to loss, right. So this is my thing, okay.
		

			It means that what does it mean, right? It means that our brains are programmed. And it's very
interesting that this has been seen through brain scans. So they've actually seen it, in the sense
that certain parts of our brain light up
		

			during certain activities. And so one of the things that they tested to see what parts of our brain
light up during certain activities
		

			What is how does our brain react to loss, and three different parts of our brain actually light up
when it comes to loss, right. And one is the very, very what they call the, you know, it's it's like
the base, the very, very primitive, or what they think is the primitive part of our brain. But it
reacts very simply to fear, it creates fear in us, the melodrama that creates that type of, you
know, Fear and Desire, and so on and so forth. It's very, very primitive, very, very sort of fight
or flight response type thing. And actually, that part of the brain activates when we experience or
when we feel we are going to experience some loss. And that makes us makes us anxious. There's
		

			another part of our brain that is involved in
		

			predicting, not predicting, but measuring the outcome of things. And that also lights up when we are
confronted with a possibility of loss. So
		

			I can't remember the third part of the brain. But basically, what's what that what sort of
neuroscientists and psychologists Morris concluded, is that we are about twice as likely to avoid
		

			loss as we are to go after the equivalent gain. Yeah, so if we have the option, right, put it
simply, if you have, if you have 50 pounds, right? If you have 50 pounds, right, you are you are
very averse to losing that 50 pounds. Now,
		

			you're twice as averse to losing that 50 pounds, as you are to the possibility of gaining
		

			100 pounds,
		

			or 150 pounds. So the point being is that you are much more reluctant to let go of that money. And
that means you're reluctant to take risks. Risk aversion is slightly different from loss aversion,
but they're very, very similar, you know, we are averse to taking risks.
		

			And they're very, very similar things that may be barely distinguishable. But loss aversion is I
guess, a little bit more specific. And it's certainly applied a lot more in the field of economics,
which is something I'm going to talk about, because it's very, very interesting. I think this whole
subject is pretty important for us as Muslims. And part of the reason is because a very strong
component of being a Muslim is giving charity. In fact, there are many things that we are either
requested or required to do as muslims, that may seem to cause some loss. To us, it may seem like
that. And we are naturally averse to that. Right? We are naturally averse to giving up our money.
		

			And that's especially the case if we can't perceive any real, immediate tangible gain from that
activity. So it's quite a hard thing for us to overcome that aversion to losing as we think of it
losing something.
		

			And that it like I said, I mean, they sort of measured it. And it does depend from culture to
culture, individual to individual, it depends on it depends upon your own economic circumstances and
situations. There are many things that will,
		

			you know, will dictate the level of your aversion, or your dislike of loss.
		

			And by the way, we're not talking about win. I think what's important to mention here is we're not
talking about just loss without gain, right? We're talking about loss with the possibility of gain.
This is what the subject of loss aversion is, of course, everybody is going to be averse to losing
something without getting anything back. Right. I mean, that's obvious, isn't it? But now, what
we're talking about here is something that is a little bit irrational, right? It's a little bit
irrational. Like why would you be averse to giving up 50 pounds? If you know you're gonna get 100
pounds back. But you know, we just
		

			Don't feel, you know that we want to take that risk. And, you know, it makes a lot of sense. On a
very basic level, it makes a lot of sense. And the reason it makes a lot of sense. And this is
something interesting that I've also thought about when I looked into this subject, something that I
don't, it seems to me that the people who have talked about this particular cognitive bias have not
factored this in. But I'm going to talk about the issue of Baraka. Right? But why is it? Why does it
make sense? The reason is, because, look, in order to acquire something, some money or some object
or some food or whatever it may be, we need to put energy into acquiring that thing. So, energy goes
		

			into us. And it's very interesting, by the way, that the loss aversion is a lot less for things that
you don't have an attachment to. So if, for example, if I give you just give you 100 pounds, your
readiness to pray the in that 100 pounds with the hope and the expectation of getting seen, you
know, 150 pounds is a lot less than if that's your own hard earned money. Now, that's just obvious,
right? But why? Why why it's still just the same amount of money, do you get the point? The point
is, it's not exactly rational, because 100 pounds is 100 pounds, right? Whether you worked for it,
or whether I gave it to you, that's still the same amount of money, it still has the same purchasing
		

			power in theory, right? It's still the same monetary value. So why would you treat that 100 pounds
differently depending on whether you worked for it, or whether I gave it to, but we do. Now, there
is something I believe here called Baraka. Right? And Baraka is we know it's something in Islam, we
understand its blessings from Allah, and the blessings from Allah. And this is something 100% I
don't think any psychologist neuroscience scientist has factored this thing in. But Baraka when you
work for something, and you do it in a halal way, and you work for something with the sweat of your
brow, that thing has about Allah blesses it, Allah gives it some,
		

			it is able to achieve things that an equivalent amount of money that doesn't have Baraka wants. Now,
that can happen in many, many different ways.
		

			But even from a psychological basis, that effort that you've put into something makes you appreciate
it more and makes you value it more. But there's something else to that as well, the fact that it's
Halloween and the fact that it has been and Allah gives it a quality, that you are able you will be
satisfied. So food that you buy, with this money
		

			will be much more satisfying, it will fill you it will say to you, it will nourish you more
effectively than food that is hot.
		

			This is a whole, this is a whole subject that is beyond
		

			what science has looked into. And it's another factor that we as Muslims need to understand.
However, the point of talking about these cognitive biases is that, that we do have to understand
that sometimes that leads us to make bad decisions, decisions that are not particularly helpful. And
you know, in the it's important to make good financial decisions it of course it is. And this whole
aspects of loss aversion can actually sometimes cause us to make bad financial decisions. And this
could be the case not just financial decisions, it could be the case within your marriage, within
relationships, in respect to your children in respect to your home, in respect to what your work
		

			many, many different things that this whole aspect of loss aversion comes into where it doesn't make
any real rational sense. It doesn't make sense at all. Because you know, on the face value, let's
take out let's perform
		

			Oh man, forget this issue of burqa, but on the face of that value, 100 pounds is 100 pounds. Why
would it matter to you? Why would it matter to you how that 100 pounds comes to you or what the
reality of that 100 pounds is? Why would you be more averse twice as much twice as averse to losing
that 100 pounds if you can gain, say 200 pounds or 300 pounds, yet we have this intense reluctance,
reluctance to part with that money, even when the possibility is really strong, that we could make a
lot more.
		

			And obviously, you can understand from the perspective of you as an individual, or as a family, or
especially as a society, societies that are extremely loss averse, often are not able to flourish,
because this is the reality. The reality of success in a materialistic sense, does depend upon
taking certain risks. That's what we do. That's what business is all about. In a sense, business is
all about taking these calculated risks. So in order to be a good and effective business person, it
is important for you to understand this dimension of loss aversion that you are naturally averse to
loss, but I think as well, from a spiritual aspect, because even when it comes to doing good deeds,
		

			you see, this is something that is very interesting. If there is a particular activity that you have
been doing for a long time, that is you have become say habitual alized to say, for example, you
regularly pray to hedges, or I don't know, whatever, it doesn't matter, but you know, there may be
some good deeds that you do regularly.
		

			Again, the whole issue of loss aversion may come in, because you may discover that there is
something else that actually gives much more reward than that deed. So the reward of it is much
greater. However, the reward is greater, but the efforts that you need to put into it and maybe
more,
		

			and the possibility of you suffering some sort of disturbance, some loss of your time, some loss of
your money, some loss of your effort, your energy is also more and so unfortunately, these things
don't help you to make the right decisions, even in terms of getting rewards from Allah subhanaw
taala. An intelligent person would understand a rational person will understand no, this is
definitely worth the risk. So I'll give you an example.
		

			Like so what here's a really good example. Let's look at the topic of Dower. Let's look at the topic
of inviting people who are not yet Muslim to Islam.
		

			Now, this is something where the possibility of you getting rewards is absolutely boss. Why? Because
the Prophet sallallahu alayhi wa sallam said that if just one person accepts Islam, if Allah guides
just one person to Islam through you, it is better than all the red camels are in another narration
is better than the world and everything it contains. And the reason is because when you If Allah
guides a person to Islam through you,
		

			every time that person prays, or fasts or give gives charity, in fact, or does any good deed reads
Qur'an, any good deed, you will get the equivalent reward of that person doing that good deed.
		

			And that person doesn't lose their reward at all. You get the equivalent rule. So you can you
imagine, right? If, if Allah guides one person to Islam through you, then every good deed they do.
It's like having someone just working, they're doing good deeds fee.
		

			But
		

			it's quite a lot of effort involved. If you think about the process that is involved in inviting
someone to is, Well, number one, you're going to have to at least spend a little bit of time
understanding what is the right way to talk to someone about Islam, how can I invite them to Islam?
Number two, you're going to have to invest time and energy into making sure that once they become
Muslim, they are going to stay Muslim. Because what's the point if they just take shahada and then
they don't pray and they don't fast? From the point of view of you earning agile and reward
		

			words, if they don't continue as a Muslim, it's a, it's an almost futile exercise, it's not really
going to benefit you. Okay.
		

			And, obviously, you know, you have to pluck up the courage to talk to someone or to hand them a
leaflet, or a booklet, or, you know, there's many different things involved. So there is an
investment that you need to make in order to get that return. But the, the the investment is so
small, and the return is so great, you must be literally mad not to take advantage of it. But of
course, many people want, they would rather, you know, get up in the middle of the night and pray
200, which is great, which is fantastic that it's good that people do that. They may rather fast or
sit, sit quietly and read,
		

			or, you know, study knowledge, which is also has huge rewards. So I mean, all of these things have
rewards. But what is the reward of those things compared to the reward of inviting or being the
means through who some someone becomes Muslim, right. And I'm just giving you one example. You can
think of many, many examples like that,
		

			in Islam, but because we are loss averse, we like to keep doing the things that we've already done,
we don't really feel that comfortable being challenged with the need to put new energy, new effort,
new,
		

			you know, new, whatever it is put more energy into studying something else doing something else
learning the ropes of something else, even if the potential and the more risk averse we are, the
less likely we are going to be to do those things. But you know, brothers and sisters, I'm sure you
can begin to figure out that that's actually really problematic. Like it might be fine, if a few
individuals are like that. But what if the whole OMA is like, what if all the Muslims are most of
the Muslims are like that? How will the civilization of Islam grow? How will the Nation of Islam
grow? How will we improve? How will we prosper? And I don't just mean materialistically. I mean,
		

			spiritually, because you can see that these rules of cognitive dissonance, they apply just as much
to our spiritual growth as they do to our materialistic life. Yeah. So one of the ways that we can
help deal with this is by first of all, understanding that we are loss averse. And I mean, one of
the most obvious ways to deal with it is to think less about the loss and think more about the game.
think less about what you're losing. And think more about what is the potential of how your life
could improve both materialistically and spiritually by you.
		

			making that commitment taking that risk, because it is it is to do with to some degree risks. Yeah.
So that's the first thing you you want to focus more on the gains and focus less on the loss.
Another thing that you can do is just just in your mind, you know, go through the worst case
scenario, right? Like, okay, even if I did lose this, or even if I didn't use that, How bad would it
really be? I mean, because that's the other thing often, we think everything's going to be a lot
worse than it is. So this is also another cognitive dissonance, like a pessimist. Pessimism bias,
you know, we just, I guess, we take like, we are loss averse, like we are risk averse, we tend to be
		

			a bit pessimistic, and we often think that things are going to be a whole lot worse than they
actually are. And you know, the opposite is also true, by the way, sometimes, we completely fail to
see the you know, the reality of how bad a situation can be. And you know, this is the human, this
is the human brain. But you know, we have to understand what what particular way we need to think in
what particular circumstances and that's something we're not always good at. Sometimes we apply a
particular way of thinking
		

			In a situation in an environment that is not suitable. And that's, I guess what this is all about
brothers and sisters, it's all about just trying to understand how does my brain work, sometimes my
brain works in a way that is really helpful. And sometimes my brain works in a way that is not
helpful. Or it can be outright and downright dangerous. And we talked about that previously, right?
We talked about that, and some of the previous cognitive biases that we discussed. Yeah,
confirmation bias, we talked about that, how that can be really, really dangerous. So brothers and
sisters.
		

			It's a very, very interesting subject.
		

			I guess I could go into a lot more. But it's really, really simple. It's not really something too
complex. It is something again, that we just need to think about, and we need to bear in mind, I'm
not encouraging everybody to be,
		

			you know, like, crazy risk takers? No, I'm not encouraging people to do that. Of course, that can be
that can be problematic as well. But all I'm saying is that just recognize that it's just, it's
something in built into us. We just don't like to use things, which is very sensible. In one way,
we've put a lot of energy and we've put a lot of effort into acquiring the things that we've got.
But in order to benefit yourself, both from a materialistic perspective, in other words, to get more
money from we do need more money, and to be in a more financially stable position. And there's lots
of things you can do with money, by the way, apart from just spending it on yourself, money is
		

			really useful to help those other people who are, you know, who are in need, and so on, and so
forth. So don't just think of money, you know, to spending mechanism for your own enjoyment. You
know, when the Mama needs money, the Dow needs money, and the people of knowledge, need money, the
poor, and the needy need support, and the orphans, and so on and so forth. So brothers and sisters,
you know, it's great to have that intention to,
		

			to enrich yourself so that you can help others. And this is the reality. Like, there's no doubt that
anybody who is successful as an entrepreneur, a successful business person, they are people who have
taken risks. And they have understood this issue of what it means to be risk averse. And they have
overcome that aversion to risk. There's just no doubt this is the reality.
		

			And yeah, and what they do is that it is they do realize that, yes, they will fail. But how bad is
it really going to be? And often you find that entrepreneurs talk about, actually, there are many,
many failures, they may be failed 100 times or 1000 times. And of course, we see them as the product
of that one time they succeeded, but they don't even look at failures as failures. This is another
thing, they look at failures as a learning process. A failure is not really a failure. It's just
Well, that's another way not to do it. And they will learn from that and keep going. So this is
another thing a lot of a lot of these issues can be dealt with, by thinking about things in a
		

			different way.
		

			Well, maybe that's a whole different subject. And why the Prophet sallallahu alayhi wa sallam
encouraged us to be optimistic, you know, as we have the same
		

			in the organization that I work with, one of our part of our code that we're trying to live by is do
your best and trust them a lot. And that's all you can do. You can put everything in place you tie
your camera, as the saying goes tie your camel and then trust in Allah. So like this not part of
Islam to take silly risks without mitigating as much as possible.
		

			And whatever is you know, readily available, right? If Sam does not say you've got a camel soul,
okay, just leave it and you know, trust Him I like it'll be there when you come back. know if you've
got a rope, you tie your camel, tie it to something tatted up so it doesn't run away and then that,
you know, that's what you can do. That's the what you need to do the rest as you trust them a lot.
And that's the sort of attitude that we should have for
		

			wasn't sisters. So, think about this in sha Allah, maybe you can just over the next week until next
week, just, you know, be aware of this particular aspect. And maybe you can just look in different
things in your life. Am I being you know, how is this loss aversion here, right? Is this really
logical? Is this behavior really rational?
		

			You know, just think about that, and see the different ways in which that particular way of thinking
might be beneficial sometimes, but also, it might be detrimental. Sometimes, at the end of the day,
brothers and sisters, like I said, at the beginning, we're just encouraging you and I'm encouraging
myself to think about the way you think, think about who you are, think about what's going on in
your brain. Understand the way your mind works better, that can only be a good thing for you in the
dunya in the Asha. So brothers and sisters, thanks for tuning in. Thanks for listening. Don't forget
to subscribe both to the the the my YouTube channel and sha Allah, please subscribe to my YouTube
		

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Especially subscribing. But for me, it's a big thing Alhamdulillah sharing it is caring. You know,
who knows who might benefit from it. Also, don't forget to also subscribe to the channel
		

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Allah bless you may Allah bless your week May Allah bless your efforts in the dunya and may Allah
give you success in the ephah Allah more severe Allah Mohammed the weather Earlywood sappy Salam.
Salam aleikum wa rahmatullah